Limited Company Guide (Brookson)
Limited Company Guide (Brookson)
Limited Company Guide (Brookson)
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What is a limited company?
There are two types of limited company.
P
ublic Limited Companies are publicly traded on the stock market and are
referred to as PLC’s.
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rivate Limited Companies are privately owned businesses and are referred to as
a LTD Company.
It is highly unlikely if you are registering a limited company for the first time, that you
will be considering the rigors of life on the stock exchange, so for the sake of the detail in
this guide, we will focus on the process of setting up a Private Limited Company. So what
exactly is a limited company?
Once you register your limited company at Companies House, you take on a degree of
responsibility. There are people to help however, so you should be careful to choose an
accountancy partner who can help through each of the stages, from setting up your business
to helping with the ongoing administration.
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What are the requirements?
Setting up, owning and operating a limited company is a major commitment. Once you
decide to go for it, you will be responsible for each and every step of the process and
for ensuring these are all managed and completed correctly. There are strict legislative
deadlines and harsh penalties should these be missed.
Incorporation
This is the first stage of the process, where you create your own company. We will cover
the detail later in the document, but registration in itself is a relatively simple process.
You can do it yourself, your accountant could do it for you, or you could employ the
services of a company formation agent. Either way, the objectives are the same, to register
your new company and all the details at Companies House. Incorporating lends credibility
to the business. It also means you have to appoint a director who is ultimately responsible
for running the business.
Directors responsibilities
It is the director’s responsibility to ensure that the company meets it obligations and that
it is run in accordance with The Companies Act 2006 (and re-inacted). According to this act,
all Private Limited Companies must have at least one director. Typically, you will perform
this role yourself. You need to ensure that the company complies with company law, that
it accounts properly with full disclosure, that it makes all statutory returns, is adequately
insured and meets all health and safety obligations.
Being the director of a business carries considerable responsibility. There are accounting
partners out there to help you, who will work with you to minimise the administration. If
you are unsure about the administrative side, then you should speak to them, use them,
but ultimately, as a director of the business, the responsibility rests with you.
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Here’s the benefits
Whilst running a limited company does have its fair share of responsibility, and the administrative
responsibilities are certainly greater than those of a sole trader, there are many advantages too.
Limited liability
In simple terms, if you run a limited company you are protected should things go wrong.
Assuming all rules have been followed, as a director you will not be personally liable for any
financial losses made by the company. This is not the case for sole traders, who are not protected
in the event that things go wrong. They are liable for all financial losses within the business.
Separate entity
As we established earlier, a limited company is a legal entity in its own right. This means
that everything from the company bank account, to the ownership of assets relates to the
business. They are totally separate from the interest of the directors and shareholders.
Whereas a sole trader and their business are treated as a single entity for tax and
administrative purposes.
Tax
One of the main benefits of working via a private limited company is that you can benefit from
a tax efficient way or running your own business. As a director and shareholder of a limited
company you could elect to take the majority of your income in the form of dividends, which
enables you to manage your own tax liability and potentially save on National Insurance costs.
Perception
If you plan to do business with larger companies, it can help if you are working via a limited
company as it gives of a more professional image. In some industries, it may even be a
mandatory requirement as they will not deal with sole traders or partnerships.
Protection
As well as the limited liability protection mentioned above, once you have successfully
registered your company, your company name is protected by law. Companies House has
very stringent rules for the naming of companies so no one else can use the same name as
you, or anything deemed too similar.
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The formation process
The incorporation of a new company is an exciting time. You are creating something new.
Your dreams, your ideas, aspirations, hopes and plans, all coming together into a new
creation. It’s your business, your future and your responsibility. So it is really important to
get it right from the start. It is also a legal process so there are certain rules to follow and
specific forms need to be completed and registered. Having said that, it has never been
easier to register a limited company.
Finding a name
When you start up a new business, one of the first things you need to do is choose a name
for your company. This requires some thought for a number of reasons. Not only is it the
first thing potential customers will see, but you have to keep it for the life of your venture.
You don’t want to have to live with something that you don’t like, or is no longer reflective
of your business. You must also ensure that your chosen name meets all the statutory
requirements, rules and restrictions imposed by company law. For example, it must not
infringe the rights of others, it should not be too similar to any name already registered
and it should also be adequately protected against others, who could look to use the
name, or others similar in the future.
While you are thinking about your company name, you should look to research domain names
at the same time. Whilst your website address is totally separate and not included as part of
the company registration process, you could save yourself a lot of time, stress and money
further down the line by researching both together. There is a lot to consider when choosing a
name, but it’s also a really exciting time. Take your time, think creatively and talk to people.
Once you have some ideas, you can test them out on the Companies House website, at
www.companieshouse.gov.uk.
Registration
This is the point at which the formalities and the legal processes begin. Up until now, forming
a limited company has been an idea in development, a creative process of thinking, preparing
and planning. At the point of registration, all of your ideas about running your own company
become a reality. This may seem a daunting prospect. In fact, it’s a very simple process.
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What you need to do
To set up a private limited company, you need to submit all of the relevant information
to Companies House. This includes detail on the name of the business, the directors, the
shareholders and detail on how the business will be run. The information needed, and the
forms you need to fill in are is covered in more depth later on in this guide.
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How long it takes
This varies and is ultimately down the the quality of the information submitted, but
typically it takes around a week to complete the registration process. If you really need
to be up and running quicker than that then for a small fee, Companies House are able
to process the registration on the day it is received assuming the documentation is all in
order. If you prefer to use the services of a solicitor, accountant or formation agent, the
service fees tend to be all inclusive, and vary widely in relation to the level and the speed
of service you require. Take time to research your options in detail.
So, the process of incorporating your company is in reality, very simple. It is possible to do it
yourself as all the forms you need are available online or directly from Companies House.
It is worth noting however that this is also a legal process, and the accuracy of the information
you provide is incredibly important. It is your company you are forming, and it is down to you
to ensure it is all set up in line with your requirements and expectations. Any mistakes at this
important stage can be time consuming and potentially costly to correct at a later date.
With such a wide range of supporting services from accountants, solicitors and formation agents,
it makes sense to shop around, to research the market and find a service that works for you.
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A bit about the documentation
In the large majority of cases these days, companies are registered online through a formation
agent. This way the forms are all completed electronically, and the registration process is
much quicker. It is of course still possible to register directly using the paper forms, they are
all available from Companies House, but this is a more time consuming and costly process.
Whichever method you ultimately choose, the documents and the detail required are
exactly the same.
Before you complete this form, it is important to ensure that the company name you want
is available and that it meets all the statutory requirements. It must also be accompanied
by the Memorandum of Association.
2. Memorandum of Association
This is a very simple, but very important document that contains the names and
signatures of the shareholders of the company and records their intention to take at least
one share in the company. Once your company has been incorporated and registered, you
cannot amend the Memorandum of Association.
3. Articles of Association
These are the internal rules by which the company will be managed. Every company must have
these by law and all members of the company must observe these rules. New ‘model’ articles were
introduced on 1st October 2009, these apply by default to all new companies unless you submit you
own. You can download a copy of the Model Articles here. Articles include details about the following:
As a director it is your responsibility to manage the company in accordance with the Articles of
Association and the law. Within this, you carry a number of financial and legal responsibilities.
Financial responsibilities:
Company Accounts
All limited companies are obliged to maintain accurate accounts. As a director of your
company, it is your responsibility to ensure these accounts are completed and maintained
to the required standards and that they are a true and fair representation of the financial
position of the company. These accounts must also be filed on time, each year with
Companies House.
Changes to the accounting reference date
The accounting reference date is the date to which the company accounts are prepared on
an annual basis. If this needs to change for any reason, it is the directors responsibility to
inform Companies House of the new date and to file subsequent accounts in line with it.
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Legal responsibilities:
Annual Return
The annual return must also be sent to Companies House each year, generally on each
anniversary of the company date of registration. This covers a lot of the information that is
currently on file about directors, shareholders, registered office and industry classification
and is required to ensure that all records on file are accurate and up-to-date.
Change of registered office
If a company moves, or you need to change the registered office for any reason, Companies House
needs to be informed so the records can be kept up-to-date.
Change of directors
You are also responsible for updating Companies House of any changes to in the particulars
of the company directors, shareholders or company secretary.
As a director you are an officer of the company, responsible for the management of the
business for the benefit of the shareholders. The same person can be both, but it is the
responsibility of the director to always act in the interests of the company.
A director who fails to meet these obligations, may be heavily fined and the company
could be struck of the register. Meeting these responsibilities and abiding by the rules is a
major commitment and not one too be taken without consideration.
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Do I need to register for VAT?
When you set up a limited company, you are not automatically registered for VAT. However if
your business either reaches or is expected to reach the VAT threshold during any 12 month
period, then you must register for VAT unless you meet either of the following conditions:
You only sell goods or services that are exempt from VAT.
You are not in business according to the the definition that HMRC uses for VAT purposes.
In other words, if you hit the threshold, you MUST register for VAT if you are in business
and selling products or services that are subject to VAT. The threshold usually increases
each year. If you do have to register, then you are obliged to charge VAT on your invoices.
This in effect increases the cost of your services by the VAT rate. It also means you can
reclaim the VAT from any purchases you make for the business. In some cases businesses
choose to register for VAT even if they operate below the threshold and therefore do not
need to. Having a VAT number may help give credibility to the smaller business, making it
appear larger then it actually is. However you may need to consider whether your charging
VAT may impact on your price to your customers.
Either way, you should really speak with an accountant. They will be able to work out the
most tax efficient way for you to pay VAT and help you to decide which, if any scheme is
best for you.
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A few words on
business insurance
The nature of your business, and the range of services you provide will largely determine
the types of insurance you should consider to ensure you are adequately covered. If you are
planning to employ people, then some forms of insurance, for example employers liability
cover, will be mandatory, whereas other insurances provide peace of mind that your business
is suitably protected in the event of something going wrong.
There are however three key types of insurance you should really consider operating as a
limited company:
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Time to start trading?
So, you’ve done it. Your limited company is now registered, you have your Certificate of
Incorporation and you are the director and shareholder of your own business.
Congratulations, it’s an exciting time. The realisation of a dream, the result of months,
maybe years of thinking, planning, preparation. It’s all there for everyone to see, on record.
It is also however just the first step. It’s now up to you to give shape to this business, to
develop it, to grow it into what you want it to be. It’s time to start trading.
But before you even pick up the phone, there are a few other things to get right first. You
only get one opportunity to start of in the correct way, to implement those rules and
processes that will ensure you meet your obligation and responsibilities a director. Now is
the best time to start. Anything later than this will be too late.
A company bank account will not only allow you to keep your personal money separate, but it
will also allow the accountability and transparency you need to ensure are there in all of your
business finances. It is really important to understand at this early stage that you MUST avoid
using your company bank account as a personal account. They need to be kept totally apart.
2. Find an accountant
Of all the professional services you will need when you are running your own business,
the one you will use most often, and perhaps the most valuable one, will be a good, reliable
accountancy service.
As a small, start up business you should choose an accountancy partner that has lots of
experience in this sector. The level and type of service you will require in the first few weeks
and months will be very different to those of a more established business. Ask them about
what other clients they have and about what experiences they have with similar businesses.
Ask them what other services they provide too. Will they complete your Corporation Tax
returns, your own personal self-assessment returns? (which you will have to file with HMRC
if you are the director of a company). Any service they can provide that can help to reduce
the administrative burden on you is certainly worth considering.
Perhaps most importantly, make sure that whatever accountant you choose, that they are able
to keep in regular touch with your business. Seeing your accountant once a year to compile
you annual accounts is simply not enough. They will not get to know you, or your business
which are the two fundamental ingredients of a successful company / accountant relationship.
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3. Prepare your documentation
You have a company now and you are the director of it, so you need to let people know,
however, before you head off to the stationers to get your letterheads and cards printed,
there are a few points to have in mind.
Every time you write to someone, whether by letter, by fax or by e-mail you need to include
specific information about your company.
You need to show your company name, registration number, registered office address and
place of registration on all pieces of written communication. You also need to display the
company name in full, including Limited or Ltd on the following items:
Invoices.
Proposals.
Receipts.
Cheques.
Faxes.
Order forms.
In addition, if you are VAT registered you need to show your VAT registration number on
all invoices.
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Don’t forget the administration
There is just one final, very important point to bear in mind. The process of setting up a
company may initially appear complex and a little daunting, however, it is a relatively
simple process. It’s about having the appropriate level of knowledge and doing the right
things, in the right order, in the correct way, at the right time. It is no different once
the business is incorporated and it is up to you as a director of that company to run it
compliantly. Initially, the administrative demands may seem a little daunting, however,
by acquiring the knowledge, and setting the correct procedures from the outset, they soon
become part of the process.
Establish a routine
Make sure you allow for your administrative duties and build these into your working week.
The longer you leave it to establish a routine, the more of a mess it gets, the more stressful
it gets and the longer it takes to fix it. Control it from day one, don’t let it control you.
And finally...
Enjoy it. Having your own company is a commitment, but it’s also a great achievement.
If you work smart, hard, efficiently and most importantly compliantly, the benefits and
rewards can be considerable.
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Here’s a little bit about Brookson
Here at Brookson, we are not your everyday accountants. We have re-invented accountancy.
Whether you are a contractor, freelancer or self-employed professional, we believe that you,
and we, should always know where your business is at. We have a great team of people who
work closely with you, every step of the way to help you work more efficiently and to make
more of your earnings potential.
We have a great range of services too, so if you choose to work as a limited company as a
sole trader or through an umbrella company, either way is fine with us, nothing is too much
trouble and we have everything we need to help you out.
For example, if you are thinking of setting up a limited company, take a look at
Brookson . It’s designed to give you all the information you need about your
finances, at your fingertips. You can literally run your business from one place, even one
screen if you wish, the dashboard. Simple. All your information brought fully
up-to-date, every 24 hours.*
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And here’s how we can help you
You can talk to us
Just pick up the phone and call us on 0800 230 0213 or email newbusinessadvisors@brookson.
co.uk. Alternatively, you can chat to us online at www.brookson.co.uk. Tell us a little about you,
your business and your plans. We are here 6 days a week and we’d love to hear from you.
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